2013 (1) TMI 867 - AT - Income Tax

Summary

Issues Involved:
1. Transfer Pricing (TP) Adjustment in respect of commission received by the assessee from its Associated Enterprises (AEs).

Summary:

Issue 1: Transfer Pricing Adjustment in respect of commission received by the assessee from its AEs

The Revenue appealed against the order of CIT(A)-15, Mumbai, which restricted the addition of Rs. 12,07,421/- made by the AO by way of TP adjustment in respect of commission received by the assessee from its AE to Rs. 70,561/-. The assessee, a wholly-owned subsidiary of Fuchs Petrolub AG Germany, engaged in blending, manufacturing, and trading of lubricated oil and greases, had entered into various international transactions with its AEs. The AO referred the matter to the TPO u/s 92CA(1) for determining the arm's length price (ALP) of these transactions, including commission income from M/s Fuchs Europe Schemierstoffe GmbH, Germany and M/s Fuchs Lubritech GmbH, Germany. The TPO found the commission from Fuchs Europe Schemierstoffe GmbH fair but deemed the commission from Fuchs Lubritech GmbH not at arm's length, resulting in a TP adjustment of Rs. 12,07,421/-.

The assessee contested this before the CIT(A), arguing that the AO/TPO erred in using the commission from one AE to benchmark the commission from another AE without considering other methods prescribed u/s 92(1). The CIT(A) agreed, noting that the TPO incorrectly attributed the entire profit on the trade transaction to the assessee and that a 5% commission on sales to the third party (Grasim Industries) was more appropriate. The CIT(A) thus restricted the addition to Rs. 70,561/-.

The Revenue argued that the method used for one AE should apply to the other AE, while the assessee contended that transactions with one AE could not benchmark transactions with another AE as they were controlled transactions. The Tribunal upheld the CIT(A)'s decision, referencing the Third Member decision in M/s Tecnimont ICB Private Limited vs. Addl. CIT, which stated that ALP should be determined by comparing with uncontrolled transactions, not controlled ones. The Tribunal found no infirmity in the CIT(A)'s order and dismissed the Revenue's appeal.

In conclusion, the Tribunal upheld the CIT(A)'s decision to restrict the TP adjustment to Rs. 70,561/-, dismissing the Revenue's appeal.

Order pronounced on this 18th day of January, 2013.